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PartyGaming price needs to go even lower, says City of London

PartyGaming, the online poker group set to join the FTSE 100 this month, will have to lower its Â£4.8bn (â‚¬7.2bn) float price even further to win the support of fund managers, according to spread betting companies and City sources.

Firms such as Cantor Index and IG Index believe investors will not support the float at 127p a share, the top end of the price range published on Wednesday by PartyGaming. The poker group's founders hope to sell shares at 111p-127p, giving it a market capitalisation of as much as Â£5.1bn, but Cantor Index believes the company will not be able to sell shares at more than 116p. IG Index puts the top price on shares at 123p.

The four owners of online poker group PartyGaming stand to pocket more than Â£1bn between them and still retain more than 70% of the shares should the company succeed with its planned Â£4.76bn London float.

The float is being led by Dresdner Kleinwort Wasserstein and the promoting banks are telling investors the company is expected to make $500m profits this year and $660m in 2006. The average number of players a day reached 121,570 in the three months to March 31. However, the prospectus, with 33 pages of risk factors, spells out why no US investment bank would touch the float.

Although 87% revenues come from US punters, the prospectus warns that the 'US Department of Justice considers that companies offering online gaming to US residents are in violation of existing US federal laws', notably the 1961 Wire Act.